IIM

Avant-Garde Business

“One day you are in, and the next you are out.”
-Heidi Klum, Project Runway

To be Avant-Garde is to be ahead of the curve. For artists, to be Avant-Garde is to produce pieces of art that turn existing norms on their ear. The art Avant-Garde artists produce is often experimental and self-referential in nature. Often, they are scathing critiques of the very world they are a part of, like Duchamp’s Urinal, a piece so influential that it is still being emulated 100 years later. The Urinal, also known as The Fountain, challenged traditional ideas of what constitutes a work of art by raising the following questions: What is art? Is art anything that conjures an emotional response, or are there certain immutable principles of craftsmanship and expression that must be adhered to for any work to be considered art? If so, who decides the standards for artistic expression?

This single work was so disruptive that the world of high art still has no definitive answer to these questions. In the century since Duchamp there has been an array of artists who have created pieces which are confusing, disturbing or downright unpleasant to the casual observer. Duchamp’s impact can even be observed in other creative fields like fashion, music, literature, and film.

High Art is a very unique industry. It is an industry where branding (the artist’s name) is of utmost importance. A painting by van Goh is infinitely more valuable than a painting by Joe Schmo. Why? Because the brand is the product, which is what Duchamp’s Urinal exposed.

What Can Businesses Learn from the Urinal?

The lesson is that conventional ways of thinking need to be challenged regularly and perspectives need to be altered. There is great potential in all things as long as they are re-contextualized so that they can remain relevant and valuable. An Avant-Garde business is one that fosters disruptive ideas. These ideas can often seem like obvious conclusions, but are only obvious in retrospect. For example, the division of labor, a notion so obvious and routine to us now, but at one time was completely revolutionary.

Organizations show their Avant-Garde approach by what they invest in. Right now, all large organizations are working on digital transformation initiatives. To be on the cutting edge, you must know where the trendsetters are focused. Here are the major areas of focus right now:

APIs

Reusable Software Assets

More Efficient Software Development

APIs

API is the shorthand for Application Program Interface. In English, it is a digital tool that businesses use to expose their services, content or resources1 and an API can take on many forms. There are four main benefits of APIs:

Creating new sources of revenue or reviving existing ones

Delivering wider reach

Fostering and leveraging external innovation

Increasing internal efficiency

Any business that wishes to modernize needs to invest in APIs on some level. Most large institutions have already made this investment; in fact a quarter of all corporate revenue comes from APIs and API-related implementation2. These forward-thinking institutions that have developed and implemented APIs into their operations are now faced with another nagging and costly problem. It is problem of Point-to-Point Integration.

Point-to-Point Integration

Point-to-Point Integration is the bane of any institution’s IT Department. To conceptualize the problem, think of an organization as a big comfy bed. The organization’s different applications and APIs are the quilt. The trouble is more and more people keep jumping into the bed. These people in the bed represent all the enterprise data and content that the organization is accumulating.

Over time, the quilt has become clumpy and uneven because it needs to cover all these new people in the bed. In order to cover everyone, more down is continuously being added and more patches are being stitched onto the quilt. Point-to-Point Integration is the sewing together of all these different patches. As new software emerges, it gets added as a new patch. As the organization grows, it will need to update their technological capabilities and security – those patches get added, too. Sometimes old patches get stitched over by new ones, and sometimes the old ones get ripped out entirely. “Need another few more patches over here… Oops! Busted a stitch over there.” All this quilt maintenance makes it lose its shape. The quilt ends up looking completely different from the original, and it’s not as warm as it once was.

Point-to-Point Integration is the custom coding of Applications & APIs so different internal and external Applications and APIs can remain connected. Smaller organizations and start-ups likely do not have this problem, or, if they do it’s to a lesser degree. For larger firms that are collecting more and more data and need to leverage this information effectively in order to stay competitive, it’s becoming unsustainable. The application software of these firms was not intended to handle the complexity of their current operations, so IT Departments are having a hard time trying to bring them to scale. Most large organizations spend almost quarter of their IT budgets just on Point-to-Point Integration3. Basically, the infrastructure is being overtaxed and is in a constant state of repair. At what point does it make sense to tear up the quilt and start fresh?

85% of IT Decisionmakers feel Point-to-Point Integration must die in the next five years4. Here the main problems with Point-to-Point Integration:

Takes too much time and resources

It’s difficult to deploy across cloud and on-premise

Apps are at different levels of functionality and serve different purposes5

Reusable Software Assets

Only 29% of companies have been able to integrate their apps6. This means that 71% of organizations are in a constant state of disrepair. Reusable software assets may be the way to solve this. Rather than being programmed as stand-alone features, an institution’s APIs will be developed as themes or templates. The software won’t be designed to serve one purpose. Instead, the software will be designed to be multifaceted. This API software may become generalized instead of specialized in nature, with precise add-on features available for certain departments in an organization. This is so software assets can be packaged and distributed freely throughout the organization in a drag and drop model for easy implementation with more widespread functionality.

Interchangeable parts in manufacturing and mass production was another Avant-Garde idea that seems obvious to all of us now. Mass production in the 19th Century came about because of the machine-tool industry and the ability to produce identical parts at a wide scale. IT Departments are acting as independent artisans did hundreds of years ago, building everything from scratch and trying to maintain each software asset with individual attention7. If all the APIs are built identically and to the same standards, then the final product will be identical and all levels of the organization will have the same level of quality. The tools have changed, but the idea is the same.

Reusable Software Assets will likely transform IT Departments from being the developers and problem solvers into becoming more of an educational or advisory department that teaches users how to construct and implement these ready-made software solutions themselves in order to perform their duties more effectively. Most of the necessary assets will have already been created, and it will be the job of the various departments to figure out, with the help of IT, how to mix and match the available resources and use them effectively. In other words, each department will have its own customizable digital workspaces.

More Efficient Software Development

To create these reusable software assets, there needs to be more efficient development. Right now, there is a heavy burden being dropped on IT Departments. The number of projects that organizations gave to their IT Departments last year grew by 27% from the year before. Two-thirds of IT professionals admit that they simply cannot deliver on all of these projects8.

Another issue is that IT Departments are trying to solve problems without knowing all of the variables. This is because of Shadow IT, which is the term for projects that are managed outside of the organization and without the knowledge of the internal IT Department. 40% of all IT spending is on Shadow IT9 which adds to the headaches of Point-to-Point Integration. Everyone is using different apps, many of which haven’t been approved, all with different capabilities, making it impossible to implement a uniform system across all business channels.

In order to get everyone on the same page, legacy management systems and security systems need to be re-developed instead of simply being patched over. An organization needs to develop software that utilizes the capabilities of consumer facing file-sharing apps, social media, and collaboration tools that can also be integrated with existing enterprise SaaS apps. They need to be cloud visible while also meeting all security and regulatory standards. This is no small task, but this is what organizations need to invest in for the future, and this is what an Avant-Garde Business should be working towards.

Modernization

By now you’ve probably heard of the Digital Transformation, or Digitalization, that is taking place across all industries and business verticals. This refers to how firms are updating their business models to handle their Digital Assets, Digital Usage and Digital Workforce. It is an absolutely crucial undertaking for any enterprise’s survival.

Start-Ups are more agile and can more easily adopt new technologies in the beginning stages. Large organizations are dedicating more and more resources to digitalize retroactively, but it is unclear if these resources are allocated properly. Mid-sized companies are stuck with the difficult task of determining when to modernize and, more importantly, how to modernize. You can read more about this here.

Goals of Digitalization

Retroactive Digitalization for organizations with legacy systems in place is no small task. It requires careful planning and implementation. We know that the factors Firm Size, Complexity of Operations, Knowledge Intensity and Threat of Competition push organizations toward Digitalization1; but what are the goals of Digitalization?

According to the MuleSoft Connectivity Benchmark Report, these are the main goals of Digitalization:

Increase IT’s operational efficiency

Improve customer experience

Increase business efficiency

The motivations to modernize may vary from industry to industry, but generally the objective is to automate redundant tasks and lower costs of operations. The MuleSoft report can be downloaded in its entirety here.

These problems may seem like separate issues at first glance, but they are all symptoms of the same fundamental problem which is the lack of a holistic approach to business models and technological operations.

Uh-oh… the “H” word. When you hear the word “holistic” you may think of spirit crystals, chimes, incense, and new age cure-alls. If this is the case, please withhold your skepticism momentarily.

Modern Business Characteristics

Holistic is the simple way of saying that all companies are now tech companies. Can you think of a single successful organization that doesn’t rely heavily on modern technological breakthroughs for their day-to-day to operations? This is why it is important to think of IT and business procedures as inseparable. If you conceptualize a business as the human body, Information Technology is like the central nervous system – it is that important for getting from A to B.

Hierarchical separation is still necessary in the modern holistic business approach. In order to operate effectively, the division of labor based on skillset is also necessary – managers manage, sellers sell, etc. – but the old idea of divide and conquer is no longer sustainable. In fact, modernized business approaches will allow employers to place their employees in the best positions, thereby maximizing their talents and accurately measuring their productivity. It is important for mangers to understand the macro technological concepts they are leveraging, but the IT Department should still handle the nuts and bolts. Open communication channels are more important than ever because of the ever-increasing speed of operations and the rate of digital disruption occurring within industries. The idea that departments should be separated and have limited interaction is going away, which can be seen with the widespread adoption of open workspaces by start-ups.

Limited interaction is also disappearing externally, with Omni-Channel customer experience. This refers to the sales & marketing approach which gives customers different product entry points (mobile, desktop, tablet, in-store) to provide a single engagement experience across all levels of a brand3. It has entirely changed how customers interact with a brand, thus changing distribution channels. Merely by interacting with the brands, consumers are imparting valuable buying behaviors and preferential data. This imparted data can enhance the buying experience and create a totally customized web experience, one with targeted messaging and unique individual offers based on a myriad of measurables. The idea is to make the buying of a product as seamless as possible for the user. Think Seamless.

Connectivity and communication are key. A modern organization should have all its lines of business working together. This means that a business should work in sync with the industry at large, have fluid and agile internal operations, as well as coordinating with adjacent business categories. On top of that, they should have active relationships with their customers.

Modern Businesses should adopt these characteristics:

Reactive and Decisive

Open and Communicative

Disruptive and Aggressive

Bend but Don’t Break

Sports analogies are always helpful when explaining attitudes and strategies. Football fans will know that the game today seems to be more skewed toward offense than it has been in the past. High-scoring offenses that can maximize their possessions have had the most success in recent years. For instance, there were 1,151 yards of total offense in the Super Bowl last year, more than 200 yards more than any previous Super Bowl game4. Defense has become something of an afterthought.

By nature, offense in football is very structured. Even offensive schemes can be extremely creative, it’s really all about execution. Offenses often start the game with all the plays of the first series being scripted. On any given play the quarterback goes through his progressions, “If the first option is covered, I’ll go here. If the second option is also covered, I’ll check down to here, etc.” The line and backs have their protections laid out, and receivers have their routes mapped. There is not much wiggle room for anyone unless a play breaks down, but in general the more organized and buttoned up an offense is the better.

Conversely, defense is all about observation and opportunity. Players on the field need to coordinate with one another at all times, passing off responsibilities from player to player. Any lapse in communication could lead to a breakdown and a big play for the offense. Decisiveness is key, and a split second of doubt or uncertainty will cost the defenders dearly. The players have to make their reads and go. There’s no time for second-guessing.

There needs to be a steady, controlled aggression. If a player is too frenzied, he’ll over pursue. If he’s too cautious, he’ll be left in the dust. “When should I contain, when should I drop back, when should I press, when should I blitz?” These things all vary from play to play and need to become intuitive, just like executing tackles or pursuit angles. Most defenses have a Bend but Don’t Break mentality, meaning they will not crumble if the opponent advances on them because they are constantly adjusting to what the offense is trying to do.

What does this have to do with modernization? Modern organizations must operate like a hard-minded defense. Although modern organizations need to be reactive, they must never be on their heels. Like a defense in football, if an institution is tentative, it’ll get run over. They need to always be aggressive and disruptive. Quite simply, organizations need to take on the attitude of the hitter, not the hittee.

Futurist Alvin Toffer famously said in the early 1990s, “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn.”5 This prediction seems to be becoming more and more true by the day. Even established colossal institutions are going to have to take on an agile, holistic, entrepreneurial, Bend but Don’t Break mindset in the coming decades.

What to Invest In?

75% of IT Decisionmakers in large organizations are currently executing digital transformation initiatives. The last 25% have plans to Digitalize in the next 3 years6.

The first thing organizations need to do is modernize by bringing all their legacy systems up to date. This means the conversion and destruction of physical records, setting up Application Programming Interfaces (APIs) to connect siloed groups and information, improvement of workflows by utilizing Customer Relationship Management (CRM) tools and Enterprise Resource Planning (ERP) software, updating employee training to bring workers up to speed, and taking advantage of machine learning capabilities.

What should organizations invest in when they are ready to take the next step towards digital transformation? The answer varies from institution to institution, but here are the top 3 investments IT Decisionmakers from 650 different large companies with over 1,000 employees are going to be making in the coming years:

Who’s Gone Digital and Why?

‘What?’ ‘How?’ and ‘Who?’ of Digitalization

Digitalization is the uniquely tailored, ingenious combination of an organization’s digital assets, digital usage and digital workforce. Think of these distinctions as the “What?”, “How?”, “Who?” of IIM.What? – Digital Assets
Digital Assets are what organizations spend on computers, software, and telecom equipment. These assets also include the interconnectivity of IoT Devices and, of course, overall data storage.How? – Digital Usage
Digital Usage is how digital payments, digital marketing, social technologies, and workflow software are used to manage back office operations and customer relations.Who? – Digital Workforce
Digital Workforce can be broken down by title or by tasks associated with positions, such as Database Administrator, Social Media Manager, UX/UI Designer, etc.

Now the ‘Why?’

Why have some industry sectors gone digital sooner than others? It is clear that there are many operational benefits of digitalization, but what ultimately drives this decision? According to the McKinsey Global Institute (MGI), there are four factors that determine the likelihood of a commercial, public or social enterprise digitizing:

1. Firm Size

2. Complexity of Operations

3. Knowledge Intensity

4. Threat of Competition

MGI created the chart below which breaks down the level of Digitization by Industry Sector in the United States. It was put together by compiling 27 indicators that combine the ‘What?’ ‘How?’ and ‘Who?’ of Digitalization to show how these industries relate to each other in terms of technological adoption. This chart was created in 2015, so it is likely that there has been more adoption across many industries than what is presented here, but it is still helpful.

The term “Digital Divide” was first coined 20 years ago to point out the gap between different segments of society’s interaction with technology. The divide was based on socioeconomic and demographic conditions, but it can also be used now in reference to the contrasting levels of Digitalization among different industries and institutions. In most industries there is an astonishing difference in the level of Digitalization between leading firms and average firms.

Even among the companies that have taken the all-important first step of Digitalizing their data and assets, only a fraction of them utilize all of the potential technological capabilities. This means that there is a Digital Divide within the ranks of the digitalized. Automating repetitive tasks and streamlining internal processes to get the most out of high-skilled workers and improving customer relations should be the objective. Ultimately all businesses are customer-driven and there are many ways that Digitalization can improve the overall customer experience and engagement through new business models.

How do the four factors of Firm Size, Complexity of Operations, Knowledge Intensity and Threat of Competition push companies to Digitize?

Here’s the answer, according to MGI:

Large firms are more likely to adopt digital tools than small firms (with the exception of small “digital natives”), in part to manage greater complexity. For a similar reason, firms with long supply chains or many establishments are also more likely to digitize. Companies with a large share of highly educated or specialized workers also tend to be more digitized since the productivity returns tend to be higher. Finally, the actual degree of competition in a sector does not seem to be a factor, but the prospect of competition is.

In other words, large organizations are more likely to Digitalize their assets retroactively, while small start-ups are likely to build their business models digitally from the beginning. Mid-sized organizations are less likely to adopt digital processes. Operations with complex moving parts are also more likely to go digital in order to improve their internal operations. The benefits to improving efficiency for businesses with highly educated, specialized employees are even greater than those with less skilled, lower paid laborers (think billable hours), so they are pushed toward Digitalization to take advantage of their workforce.

The final push to Digitalization is also the greatest motivator; FEAR. The fear that a leaner, younger, more agile and more advanced competitor will emerge and crush you. This fear is not unfounded. In fact, businesses that rely on a single revenue stream or that play an intermediary role are at the greatest risk in the Digital Age because it is the nature of digital disruptors to give things away to consumers and to bypass middlemen. Just think about how music streaming services have changed the recording industry, or how travel booking applications have reinvented the travel industry. These are just two examples, but you can look at how digital disruptors have come into almost every conceivable industry and destroyed value by giving things away to the consumer, seemingly for free. This disruption forces modern companies to create more sustainable business models by experimenting with alternate sources of revenue. 1

The Digital Divide among firms today can be compared to the difference between those organizations that utilized electricity 100 years ago, and those organizations that did not. If you haven’t adopted Digital Processes for your firm, you’re working by candlelight. It’s time to get on the grid.

The saying, “Build a better mousetrap, and the world will beat a path to your door” has been attributed to Ralph Waldo Emerson for years. Mr. Emerson would likely revise his famous axiom if he were alive today. Building a great product is not enough – it must be individualized and customized in order to offer a personalized user experience. This can only be achieved when organizations embrace the digitalization of their processes. Businesses must rethink how they interact with their customers and how they operate internally if they want to remain competitive. Now and in the coming years, an organization’s survival will not depend on having a superior product delivered at a lower cost; instead, survival will depend on that enterprise’s capacity for change.

Form can be thought of as essence and content. Dynamics can be thought of as potential. What is a greater measure of perceived potential than the stock market? On the open market, an enterprise’s value is not based on what that enterprise is, but rather on what the enterprise could be. Here is a table taken from a recent white paper by Zeus Kerravala of ZK Research entitled, “Digital Transformation Ushers in a New Era of Communications” that tracks the turnover of companies on the S&P 500 Index since the late 1950s.

From the same white paper1, which can be download in its entirety HERE:

The chart shows that in 1960, businesses remained on the index for 50 to 60 years. By the 1980s, the speed of churn had doubled. Based on these trends, by 2025, businesses are forecast to stay on the index for only 12 years. ZK Research predicts that 75% of the S&P 500 Index will turn over in the next 10 years as digital transformation takes hold.

The lifespan of 500 largest U.S stocks (weighted by market capitalization) map up nicely with the Three Waves of Technological Disruption. There are many factors that impact markets and this is purely speculative, but the major drops seen from 1980 to 1990, and 2000 to 2010 could be the result of late technological adoption. The First Wave of Technological Disruption was the availability and development of the personal computer in the early 1980’s. We see a significant drop in the lifespan from 1980 into the 1990’s. Could this be because many of the largest companies didn’t effectively incorporate this instrumental technological development into their systems, while emerging companies managed to do so and passed them by? The Second Wave, the development of the web in the 1990s into the 2000s, was also followed by another major drop in the average life on the S&P 500 Index. Did slow utilization play a role in this spike as well? Now we are in the midst of the Third Wave which is being defined by the leveraging of data and the streamlining of processes through automation. We should see a slight uptick in the lifespan according to the graph. It’s fair to assume that if companies that don’t keep up with these powerful tools and modernize, they won’t be around for very long. Many variables impact markets, but it is hard not to notice the waves.

Although though there are upticks in the lifespan of the major organizations, as the chart shows, the rate of change within the S&P 500 is occurring at a high frequency. These institutional changes might be because technology is continuing to develop at such a rapid pace. The increasing rate of development won’t just impact the major corporations – it will touch everyone. If your organization is slow to react, you could easily find yourself not just one wave out, but rather two or three. Pretty soon you’ll sink.

In philosophical terms, dynamics and form are intertwined. There is no being without becoming in the world of Process Philosophy. This applies to any business or organizational process. Simply put, there is no stasis. You and, by extension, your organization can’t be too much of form or too much of dynamics. Essence and potential must work together. Consider this revised version of Ralph Waldo Emerson’s famous expression: “Build a better mousetrap, and the world will beat a path to your door… but the world won’t stick around.”

The question that you need to ask yourself regularly is how can you get your users to stay?

We are in the midst of a major technological disruption – one that will transform the nature of our business practices and daily operations. How we function internally and with our external customers will evolve. The kind of dynamic change we are experiencing has occurred twice in the last 40 years. We are in the third wave of technological overhaul. These waves of change will likely happen more frequently in the future. The simple truth is that once this wave has passed, EVERY company will become a technology company to a certain degree.

First Wave of Technology Disruption

The first wave came about with the availability of the personal computer in the early 1980s. In 1965, Moore’s Law predicted that the number of transistors on an integrated circuit would double every two years and decrease in relative cost at an exponential pace. It stated that processing power would double and the price would drop by half in bi-yearly intervals. This prediction coming true is what pushed the world into the digital age. Computers could be built smaller and smaller and at a fraction of the cost of the prior years’ models. By the early 1980s the technology was affordable enough and could be made small enough that individuals could take advantage of them.

The decentralizing of computing technology allowed individuals to rapidly perform functions and improve overall efficiency. This was the beginning of database management as we know it today.

Second Wave of Technology Disruption

Telecommunication networks were used to link these personalized computers. This interconnection enabled the rapid collaborative development of open source software through online repositories, which became the worldwide web. These software programming languages came to be standardized and used all over the web. Most businesses at the time utilized these programming languages to set up their own intranets, which were isolated and customized to their own particular needs.

Tech companies like Microsoft, Apple, Google and Apache had to allow for these technical standards which were established in the early days of the web to be supported by their server software and browsers rather than build their own individual proprietary software. This allowed the web to continue to grow because it required cross-system functionality. For example, Google Chrome would support the same features as Apple’s Safari and vice versa. It also meant that one tech company couldn’t black out their competitors features and forced them to compete by advancing the tech and delivering better products. Businesses began to use the massive established telecommunication networks for practical business solutions in the late 1990s and 2000s. This allowed for instantaneous access to data and mobile utilization through email and later through mobile applications. As smartphone technology advanced and connectivity became more reliable and more available, the mobile workforce blossomed and traditional corporate systems and expectations began to shift.

Third Wave of Technology Disruption

This is where we are now. This current wave is propelled by the availability of vast amounts of data and artificial intelligence and machine learning. According to the Association of Intelligent Information Management (AIIM), the Third Wave of Technological Disruption will be about using advancing technology to improve efficiency and productivity and for “understanding, anticipating, and redefining internal and external customer experiences.” The wave is going to change many organizations’ approach. There will be less need for intermediaries. Multiple parties will be able to work on the same task with minimal delays and an increased level accountability. Systems will face less security risks IF organizations make the proper investment in their information governance programs… That is a big “if.”